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Freemium works in the iPhone’s $2.4 billion App Store business

It may come as no surprise that more people download applications on the iPhone and iPod touch than on Google’s Android phone, but on both services, people are making purchases based on services they’ve already tried for free.

Mobile ad network AdMob released its July survey results today. After surveying 1,117 mobile phone users, the company found that across platforms, free-to-paid upgrades are the most cited driver for mobile app purchases, helping to prove that the freemium model works. In mobile at least.

The iPhone, represents 60% of the U.S. smartphone market, and it has by far the stickiest retail presence in mobile.

AdMob found that 40 to 50% of iPod Touch and iPhone users download apps, compared to 19% of Android users. Extrapolating from AdMob’s data, GigaOm’s Om Malik estimates that the iPhone App Store is now bringing in $2.4 billion a year.

And what does that mean for developers? Free, ad supported apps often translate into paid downloads.

Writes Malik:

“People are happy spending money on apps for their smartphones, especially after they’ve had a chance to try them for free.”

This is true for the iPhone’s smooth interface, but it also applies to Android (and likely other platforms). Writes AdMob: “Users who purchase paid apps on either
platform exhibit similar downloading and spending habits, indicating
the potential for paid apps on Android Market as it develops.”

Each month, Android and iPhone users download approximately eight free apps a month. iPod Touch owners download an twice as many free apps a month. Spending on the Android averages about $8.63 a month for apps, while users spend about $9.49 a month on the iPhone and $9.69 on the iPod Touch. But across platforms, users said they are most likely to download a paid app if they liked the free version: 54% of users surveyed on the iPhone, 52% of Android users and 72% of iPod Touch owners.

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Paid links have been and still are a popular SEO technique and it’s not hard to understand why: they promise instant gratification to those who can’t wait for results. Unfortunately, paid links are not in favor with search engines for obvious reasons and those who employ them today do so at significant risk.

As the importance of social media becomes more apparent to businesses both large and small, it’s no surprise that the desire for instant gratification is rearing its ugly head in the form of ‘paid friends‘.

The calls for tough government regulation designed to protect the privacy of internet users are getting stronger in the United States. But could there be unintended fallout if regulations are implemented?

Jeremy Liew, a managing partner at VC firm Lightspeed Venture Partners, thinks so. In his opinion, the impact of the level of regulation that is being demanded “would be enormous for companies relying on online advertising“.

According to estimates in a recent report, around $200m in iPhone apps are sold each month in Apple’s App Store. The same report pegged the amount of money generated by app sales in Google’s Android Market at only $5m.

But one company that develops apps that are sold in both marketplaces, Larva Labs, suggests that the gap between the iPhone economy and the Android economy may be even greater.

The reason? Despite producing Android apps that are ranked well in the Android Market, that have been featured by Google and that sell for $4.99/each, the company only managed to make $62.39/day on average from Android app sales during the month of August. As Larva Labs’ Matt Hall writes, “Very difficult to buy the summer home at this rate“.

This week Google was sued by Lending Tree, a company whose website enables consumers looking for mortgages and other loans to connect with lenders. LendingTree alleges that Google is planning to launch an online loan exchange of its own and that it will use technology provided by one of LendingTree’s vendor. The problem: LendingTree alleges the vendor is contractually forbidden from working with LendingTree competitors, which LendingTree clearly believes Google is.

For its part, Google says that it’s simply “working on a small ad unit test that will run against a limited number of mortgage-related search queries in the U.S.” So while we don’t yet have enough in the way of hard facts to evaluate the merits of LendingTree’s claims, the lawsuit raises an interesting question: what if Google gets into the lead gen business?

Shopping basket/cart links and icons need to catch the attention of shoppers, and should help them to find the link to review the contents and make a purchase.

There are a number of ways of displaying the basket link, from a simple text link to permanent basket icon showing the contents and total value. I’ve been looking at a few examples from a selection of UK etailers…

September 9th 200915:16

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Nike’s latest flagship store has arrived on New York’s Fifth Avenue, and with it comes a glimpse into the future of retail. An oft-trotted expression maybe, but the ‘Nike House of Innovation 000’ (its official title) is deserving.